CBDT’s New Norms to Stop Tax Evaders From Escaping Just by Paying Penalty

The Income Tax (I-T) department have issued revised guidelines making serious offences under the black money and benami laws “generally” non-compoundable.

Compounding means that the authorities agree to not prosecute offenders in return for a monetary consideration. So the new norms now strictly restrict any person or entity from settling a case of tax evasion by just paying tax demand, penalty and interest.

The new guidelines kick in from 17 June 2019 and apply to all cases for compounding received on or after this date. The Central Board of Direct Taxes (CBDT) has directed its senior officers to circulate the revised guidelines for compliance.

The latest guidelines classify offences into three categories. The first category of offences, which is open to compounding, includes defaults under tax deducted or collected at source and failure to file return.

The second category of offences, for which compounding will not be allowed, deal with willful evasion of tax, removal or concealment or transfer or delivery of property to thwart tax recovery in a search operation.

The third category of offences that "shall normally not be compounded" includes offences committed by a person for which he was convicted by a court of law under direct tax laws, enabling others to evade taxes, launder money by generating bogus invoices, offences relating to undisclosed foreign bank account or assets under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or under the Benami Transactions (Prohibition) Act,1988.

The CBDT guidelines also mentioned that offences committed by a person which, as per the information available with the Principal Chief Commissioner of Income Tax and other officials concerned, have a bearing on a case under investigation (at any stage including enquiry, filing of FIR/complaint) by the Enforcement Directorate, CBI, Lokpal, Lokayukta or any other Central or state agency are also not to be normally compounded.

However, the finance minister may relax the restrictions for compounding of an offence in a deserving case, on consideration of a report from CBDT on the petition of an applicant.